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Loan default.

The default of billions of rupees by 'the big guys' explains why and how they spent millions of rupees in election. They expect to plunder much more after being elected. Such dishonest 'big guys' ought to be disqualified from taking part in the elections in future. The nation cannot prosper under the leadership of such persons, who are heartless plunderers.

In August this year, a very influential US ambassador, Mr. John Hansman met Dr. Mohammad Yaqub, Governor of the State Bank of Pakistan and raised the question of non-recovery of loan worth Rs.130 billion. The meeting was also attended by a number of veteran police officers. They all apprised the ambassador of the situation and informed him that a large number of the defaulters, 90% of whom, according to the Prime Minister, are non-politician, have declared themselves bankrupt in order to save themselves from being convicted. Moreover, they occasionally take recourse to legal protection which saves them from arrest. Political pressure is a third factor that stops criminal proceedings against the defaulters.

After collecting all necessary information in this regard, Mr. Hansman discussed the matter with some influential personalities of the government of Pakistan, and made it clear that the US administration, the World Bank (WB) and the International Monetary Fund (IMF) will no longer tolerate loot and plunder of the banks and advised serious action against the defaulters in order to recover all the money unlawfully devoured up. Mr. Hansman also contacted Mr. Iftikhar Hussain Gillani, an opposition member of the National Assembly and reputed lawyer, and requested him to raise the question of default in the Assembly and suggest what measures ought to be taken against the defaulters and those bank officers who unjustifiably helped them in the sanction of loans. Gillani told the house that the default stood at Rs.10 billion in 1985, which rose to Rs.80 billion in July 1993, and shot up to Rs.130 billion in August 1996. He proposed from the platform of the National Assembly to arrest the defaulters and their aids in the banks under MPO and keep them behind bars so long as the loan was not fully recovered. He informed the house that the country was losing Rs.170 million per year on account of these stuck-up loans. Gillani cited the example of South Korea, where even a head of the government was not spared when the charge of corruption was proved against him, and was awarded death punishment. Gillani claimed that most of the defaulters have falsely claimed bankruptcy, while they were living the life of a prince. On a question from a treasury member whether Mr. Gillani's proposal had the concurrence of the opposition, Mr. Gillani said that he was speaking not of person but of principle, and he firmly believed that all those found to be involved in this heinous crime, should be arrested without exception.

According to the governor of State Bank the government is going to unveil another group of 250 defaulters, who, in cooperation with the 250 defaulters whose names have already been published have deprived the exchequer of Rs.100,285 million. These 500 top defaulters owe Rs.69,324 million to nationalized commercial banks, which comes to 69.13% of which 60% were at least three years old while the problem lingers on for about 10 years. These defaulters also owed Rs.6,058 million to the denationalised banks (8.74%), Rs.6,130 million to ADBP and IDBP (8.84%) Rs.13,275 million to DFI's (19.15%) Rs.2,290 million to foreign banks (3.30%) and Rs.576 million to others (0.84%).

The State Bank governor urged the legislature to speed up the proceedings of criminal cases against the defaulters, and to confiscate their property, if needed. Even if the constitution is required to be amended with this end in view, it ought to be amended forthwith.

There is a rumour which is believed by a number of political leaders including Mr. Gillani to be true that the US administration, IMF and the World Bank are making a mere excuse of the loan default, while the real motive behind it was to dissolve the National Assembly and to set aside the government of Benazir in order to establish an interim government, for at least two years, constituted by some financial experts who enjoy the confidence of the USA government, IMF and the World Bank. With the help of those financial experts, the US government, and the financial organisations do intend not only to recover stuck-up loans of billions of rupees, but also to oust the corrupt people from political scene, because Washington has its own reasons to apprehend that Pakistan is stepping towards a bloody revolution. USA wants to pin-up the situation before-hand by purging Pakistani Society from corrupt politicians, demoralised government executives and heartless feudal lords. Some of the western intellectuals hold that reform could not be brought about in Pakistan without the eradication of the present corrupt society. But some Pakistani politicians and some retired military officers call it a conspiracy with a view to establishing a sort of financial sovereignty over Pakistan just like one established by East India Company in the 18th century sub-continent.

The crisis in the banking system of our country led however, to a serious discussion in the National Assembly the other day exposing topmost loan defaulters and political leaders who had collectively gulped more or less Rs.130 billion from the exchequer. The list of the defaulters was prepared by the State Bank of Pakistan, and presented to the Speaker of the Assembly by none other than the Prime Minister herself. It, therefore, appears to be more authenticated than the previous list prepared at the instance of the ex-caretaker Prime Minister, Moin Qureshi. The list under review include 250 names of those top defaulters who borrowed more than Rs.10 million each. The list of smaller defaulters, who borrowed less than Rs.10 million each, also shows a cumulative default of not less than Rs.35 billion. At least 53 of the top defaulters belong to textile sector, and not less than 13 are sugar mills.

The list of defaulters, however, shows that the Ittefaq Foundries (Pvt.) Ltd. is at the top with Rs.2.201 billion overdue and another Rs.1.811 billion also fallen due. Tawakkal group also stands prominent in the list.

It is interesting to note total loans defaulted during the PPP's second stint in power was well over 60 billion rupees if the 22 per cent loan recovery, amounting to Rs.17 billion during the last three years was also considered. This amount far exceeds the amount of Rs.40.8 billion to be mobilised through additional taxation in the budget 1996-97. The defaulters list also gives a clue that the influential businessmen and feudals extracted loans because of political clout. According to the reports most of the loans which were written off belonged to the textile sector. It is claimed that they were unable to pay the loans. Pakistan Banking Council, however, pointed out that most of the loans written off were non-genuine cases.

The government has started rounding up the defaulters and to begin with two directors of Tawakkal Group Abdul Qadir Tawakkal and M. Rafiq Tawakkal and Abid Saigol Director of Mohib Textile were arrested. In this connection bankers who helped the defaulters to secure such big loans have also been arrested. The case in point is the arrest of Mr. Matiur Rehman the ex-chairman of NDFC who helped Tawakkal group to grab Rs.320 million. Enquiries against Abul Saeed Islahi Provincial Chief of NBP Punjab have also been recommended. It may be mentioned that Islahi was instrumental in allowing the payment of loans to the extent of Rs.1.775 billion on verbal instructions. More arrests of bankers are in the offing. In fact bankers not only allowed lending but also pocketed commissions so much so that in some cases they demanded partnership in business. Mr. Gillani suggested a 5-point action plan against the defaulters as follows:

a) publication of the list of defaulters and referring it to the standing committee of the parliament,

b) freezing forthwith all movable and immovable assets of the defaulters,

c) banning loans to the politicians or on their recommendation,

d) privatisation of nationalised banks through stock exchange,

e) prohibition of benami (anonymous) accounts, and asking the existing benami account-holders to convert such accounts into their own names within 3 days.

The leader of the opposition, Nawaz Sharif, proposed that the process of accountability should be kicked off from the top including himself and the Prime Minister through a commission of judges to be appointed by the parliament with specific power vested in this regard.

It is however, a very interesting point to note in this context that the defaulters list contains the names of the leaders from both sides of the fence along with the names, real as well as imaginery of the influential nonpolitical businessmen and industrialists.

But when the National Assembly Standing Committee on Law sat in a meeting to take in to account the list of the 250 top most loan defaulters, the opposition members walked out on the plea that the proposal of the leader of the opposition had not been considered. The leader of the opposition was repeatedly emphasising his proposal to appoint a commission of judges.

The governor of the State Bank of Pakistan has suggested amendments in the Constitution to deal with the loan defaulters so that the criminals may be punished speedily. He informed that upto March 31, 1996, there was a total default of Rs.100.85 billion out of which the share of top 500 defaulters was 69.13%. While giving out this figure, he admitted that some of the banks might possibly have not provided the details of all the defaulters. He also said that 62% of the total amount was in litigation, while the age of 60% of the loans was more than three years.

But the question arises how this huge amount was allowed to accumulate for a number of years. Certainly, the situation could not have taken such a horrible turn without the connivance of the outgoing as well as the existing government. Ayaz Amir has correctly remarked in his column in Dawn that the list now being published would have had a far greater impact, had it come earlier and corresponding action taken. This has been termed by him as dawning of belated wisdom.

The loan so generously granted by the banks to the highly influential top-notches of the nation, allowing them to keep and utilise the money according to their own sweet will, is highly objectionable and is tantamount to missappropriation, which is a penal crime. In this way the flow of money stops, and a great bottleneck is created the progress of a constructive project. Moreover, a cursory glance over the list of defaulters gives us a clear impression that there had been no limit to the grant of loan, which, in most cases, seems to have exceeded the financial worth of the loanees. Moreover, it appears that the loans were granted, in some cases, repeatedly, even under the circumstances when previous loans were yet to be paid.

The default of billions of rupees by 'the big guys' explains why and how they spent millions of rupees in election. They expect to plunder much more after being elected. Such dishonest 'big guys' ought to be disqualified from taking part in the elections in future. The nation cannot prosper under the leadership of such persons, who are heartless plunderers.

It is surprising that the prime minister has reportedly said that even if the loan money is fully recovered, honey and milk will not flow in the country. It is correct that the money that has been defrauded, if regained, would not be enough to change the destiny of this poor nation yet Rs.130 billion is not too meagre an amount to be taken lightly. It may reduce the burden of taxes, and may remove the stringency of the budget to a large extent having good impact on the economy and welfare of the nation.
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Title Annotation:non-payment of bank loans in Pakistan
Author:Haque, Mohammed Zahirul
Publication:Economic Review
Date:Sep 1, 1996
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